February 9, 2011

Posted by Bill Esterson on February 09, 2011

The news that the economy shrank by 0.5% in the last three months of last year is very worrying for everyone in Sefton.

If the same happens between January and March, then the private sector will simply not be able to offer the jobs to the thousands of people losing their jobs as a result of the government’s massive cuts.

The government is also cutting the support for business by closing the Grants for Business Investment Scheme brought in by the Labour government. This cut will not help at a time when business could do with all the support it can get. As the economy grows business will create jobs but the economy has to grow first. The scale of cuts and the type of cuts are not helping the recovery and the VAT rise, the massive hike in fuel and other prices also puts business under huge pressure at a time when customers are very unwilling to pay higher prices to make up for the rise in business costs.

The Prime Minister says he wants to grow the economy and certainly we need growth if we are to pay off the deficit caused by the global banking crisis. But the outgoing director general of the CBI doubts that the government strategy will work and its planned White Paper on growth has been cancelled.

The National Institute for Economic and Social Research (NIESR), a leading independent think tank has called on the government to “ease off” spending cuts and consider tax rebates if the economy slows down any further. They also don’t believe that the government’s plans will reduce the deficit as claimed by the chancellor.

All of which suggests that the government is going too far and too fast with the cuts and they should allow councils like Sefton much more time to make the savings requested. That additional time would mean that cuts to children’s centres, youth clubs, school uniform grants and the other cuts pushed through by Sefton Council could be delayed while alternatives were prepared. A slower approach would also allow the private sector the time to strengthen and create the jobs which we need to replace the people about to lose their jobs in the public sector.

One reason given for cutting this fast and this deep is that the markets will downgrade the credit rating of the UK unless the government does so. In fact, the NIESR says that this will not happen and the government can continue to borrow at very low interest rates in order to support the economy and to boost the private sector. Once the private sector is strong enough, that stimulus can be withdrawn.

The more gradual approach to cutting back whether in health, education or the police is supported by many of the people who work in those services. This should come as no surprise. However, again and again I am told by people who work in the public sector that if the government gives them more time, they will be able to save money, run the services more efficiently and protect the people who rely on those services. It also means that there is no need for compulsory redundancies. Sounds good to me.

My challenge is to persuade government ministers and Sefton councillors to scale back the speed and timing of the cuts in the interests of economic growth and improving services.

John Maynard Keynes said: “Look after unemployment and the budget will look after itself.” Keynes was largely responsible for the policies that allowed the UK to pay off the much larger deficit which resulted from the Second World War. So if Keynes was right (and he was after the war) the government should not be cutting back in anything like the way it is and it should be trying to keep people in work. Scrapping the future Jobs Fund when 1 million young people are out of work is exactly the opposite of what they should be doing. For a modern day example, we need only look to America. The US government has not cut back yet. In fact it continues to borrow money as it believes the private sector needs the public sector to stay strong.

The result? The US economy grew by 0.8% in the last three months of last year. Quite a difference from the over here where the economy shrank by 0.5%.

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